Pipeline company Magnum Hunter Resources has signed a deal with natural gas processor MarkWest Liberty to deliver and process “liquids-rich” Marcellus Shale gas from northwest West Virginia. As part of the deal, a Magnum Hunter subsidiary (Eureka Hunter) is selling an under-construction gas processing plant to MarkWest. What it all means is that Magnum Hunter and MarkWest are joining forces to handle a large capacity of shale gas that needs processing in northwest WV.
From the Magnum Hunter press release:
Magnum Hunter Resources Corporation announced today that its wholly-owned subsidiaries, Eureka Hunter Pipeline, LLC and Triad Hunter, LLC, have entered into definitive services agreements with MarkWest Liberty Midstream & Resources, L.L.C., a partnership between MarkWest Energy Partners, L.P. and The Energy & Minerals Group. The Agreements provide for long-term midstream processing and related services in the liquids-rich Marcellus Shale. This will include natural gas produced in Northwestern West Virginia that is gathered through the Eureka Hunter Pipeline System, including equity production for Triad Hunter and other third party producers.
Pursuant to the Agreements, Eureka Hunter has sold its under-construction 200 MMCFE per day capacity Thomas Russell cryogenic natural gas processing plant to MarkWest Liberty. MarkWest Liberty will now install this new plant, to be named the "Mobley 2" plant, adjacent to MarkWest’s 120 MMCFE per day capacity gas processing plant named the "Mobley 1" plant. Mobley 1 is currently anticipated to be in commercial operation in the second quarter of 2012. Mobley 2 is expected to be in service in the third quarter of 2012. The completion of both Mobley plants will increase MarkWest Liberty’s total gas processing capacity by 320 MMCFE per day. Natural gas liquids handling services will be provided by MarkWest Liberty, with fractionation services anticipated to be handled at its Houston, Pennsylvania processing and fractionation complex.
Eureka Hunter will extend its 20 inch gas gathering system to the Mobley processing complex on or before May 1, 2012 in order to begin delivering unprocessed natural gas production to both Mobley Plants for processing. Eureka Hunter will be gathering both Triad Hunter’s and other third parties’ natural gas production for delivery to MarkWest Liberty’s Mobley processing complex. Initial delivery volumes from Eureka Hunter to the Mobley complex are currently estimated to be in the 50 – 75 MMBTU per day range. Based on current pricing for NGLs, Eureka Hunter and other third party producers are anticipating a "pricing uplift" of between $1.00 – $1.25 per MCFE sold (net of gathering and processing charges). Additionally, natural gas production processed at the Mobley complex will be able to access both the Columbia Gas Transmission and the Equitrans interstate pipeline systems.
The Agreements also include a mutual cooperation agreement between Eureka Hunter and MarkWest Liberty whereby both companies have agreed to jointly develop critical natural gas related services to support Marcellus Shale producers in a significant portion of Northwest West Virginia.
Mr. Don Kirkendall, Senior Vice President of Eureka Hunter Pipeline, LLC, commented, "The comprehensive midstream services agreements that Eureka Hunter and Triad Hunter announced today with MarkWest Liberty are a very positive event for our Company. Due to the very high BTU nature of the natural gas stream produced from the Marcellus Shale in northwestern West Virginia, it has been a priority for Eureka Hunter to not only be able to offer gathering services, but to also offer processing such that the extremely valuable NGLs within this production stream can be captured and then sold on a stand alone basis in order to realize full economic value. These new agreements with MarkWest Liberty will allow Eureka Hunter to become the midstream services provider of choice in Northwestern West Virginia. Adding Mobley processing as another delivery option for producers connected to Eureka Hunter expands the optionality that makes Eureka Hunter so unique in this region. The proceeds to be received by Eureka Hunter from the sale of our Thomas Russell cryogenic processing plant under construction further enhances our liquidity position and allows our expansion activities to accelerate. Eureka Hunter’s sister company, Triad Hunter, will benefit from having a pipeline ready to move its rapidly increasing raw Marcellus Shale production to sales and now processing. The ability of Triad Hunter to book additional NGL proven reserves is also now significantly enhanced. We are excited to be working with MarkWest Liberty in this new relationship. As the largest natural gas processor and fractionator in the Appalachian Basin, MarkWest has operated vertically integrated natural gas processing and NGL fractionation, storage and marketing services to producers for more than 20 years."*
*Magnum Hunter Resources Press Release (Oct 5, 2011) – Magnum Hunter Subsidiary Announces Marcellus Gas Processing Initiative With MarkWest